Business schools must decide response to the digital revolution
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The digital revolution has dramatically changed the way in which services are delivered to consumers. Amazon has replaced many book stores for example, while entertainment is no longer just provided by clowns and actors performing in local theatres but by film stars that Netflix streams into our living rooms.
A service that has changed remarkably little, despite the digital revolution, is business school education. At the majority of US business schools it still takes two years to complete a full-time MBA programme. The costs of that programme, in contrast to the productivity gains realised elsewhere, have gone up, rather than down.
The emergence of massive open online courses (Moocs) offers the prospect of dramatically lower instructional costs and a shorter time away from the job. Organisations such as Coursera and Udacity are considered potential disrupters of the academic business school community. Will business schools face the same fate as bookstores? And, will business school professors find themselves jostling for space with virtual stars?
Business schools and business school faculty are clearly vulnerable. A top full-time two-year MBA programme costs about $120,000. Blessed with those revenues, elite business schools have not focused much on efficiency. With overheads, a professor costs his or her business school about $300,000 per year. If we allocate half of their time to teaching and assume a typical teaching load of three courses per year, instruction alone costs about $50,000 per course, or $1,250 for each of, say, 40 students enrolled.
Allocating only half of faculty time to teaching underscores a second source of vulnerability. Top business schools conduct both teaching and research. However, only teaching generates revenue directly. Research, in contrast, promises only intangible and indirect benefits such as improved business methods in society. Yet, research is extremely expensive. Given current salaries and publication rates, we estimate that each scholarly article published in a top academic journal costs a business school about $400,000.
Leading Mooc providers do not pay for research and as a result Moocs also threaten to “unbundle” teaching and research. In our role as Wharton school professors we have each created among the first business school Moocs, which have enrolled hundreds of thousands of students. At this scale, Wharton spends just pennies to register a new student in a Mooc and a few dollars for every student who successfully completes all the required work for the course.
Despite this stunning cost advantage over conventional classroom instruction, we do not believe that Moocs threaten top business schools. Online courses, open to everyone and given away for free, will not lead to the extinction of MBA programmes.
Rather, it is the technology embedded within the Mooc – chunked asynchronous video content created by an expert – that poses the real threat. We call this technology SuperText in that it is analogous to a textbook, but delivered as a more engaging and pleasant experience and offering the potential to adapt to student preferences and learning styles. SuperText could certainly replace a large number of classroom instructors. However, if used differently, the same technology could strengthen today’s business schools by boosting student learning and leveraging faculty and other expensive assets.
So, what will the future bring? Long-term forecasts of technological evolution in an industry are almost impossible. However, we have outlined three possible scenarios, all of which are built around the assumption that SuperText will substantially increase the productivity of instruction.
In the first scenario, the size of the business school faculty remains constant. With a fixed amount of faculty time, a more efficient technology will lead to more output, such as additional executive education offerings, more intensive learning experiences in current degree programmes, or public outreach via Moocs.
The second scenario hinges on the assumption that there is a limited job market for top MBA students. McKinsey and Goldman Sachs will only hire so many MBA graduates in a year. If business schools do not increase output, an increase in teaching productivity will reduce the need for faculty. In this scenario, a lot of local performers are replaced by dramatically fewer stars on the screen.
The third scenario challenges the assumption that the acquisition of knowledge, becoming part of a powerful social network and having access to desirable employers have to be bundled together in a two-year degree programme. With the adoption of SuperText, the fundamental architecture of the business school could crumble. Because SuperText eliminates the need for students to be in the same location at the same time, it enables students to learn on demand where and when they wish.
Rather than spending two years in business school on the assumption that some of that knowledge will pay back in a distant future, why not learn what you need when you need it? And since newly acquired knowledge can be demonstrated on the job the next day, the need for certification by a third party wanes.
These three scenarios offer three possible futures for business schools. It is now up to business schools to look at these possibilities not as something that is bound to happen, but rather as a menu of strategies from which business schools can choose as they prepare for their futures. The need for a good laugh on Saturday night did not go away with the advent of motion pictures, nor will the needs addressed by business schools disappear. We, as educators and administrators, must decide how to use SuperText to better serve the educational and professional needs of aspiring business leaders.
Christian Terwiesch is professor of operations and information management at the Wharton School, University of Pennsylvania and co-director, Mack Institute for Innovation Management at Wharton.
Karl Ulrich is vice-dean of innovation at the Wharton School, University of Pennsylvania and professor of operations and information management at Wharton.
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